I believe people should have to prove themselves before they can manage other people's money and the best evidence of investment skill is a track record. That's why I require the Marketocracy Masters to outperform the S&P 500 for a minimum of 5 years before their model portfolios are used for clients with separately managed accounts.

Steps To Take Before The Next Stage Of Europe's Crisis

Now that the Greek election is over, media attention has shifted to the European sovereign debt problem. It looks to me that any solution is going to include continued low interest rates, perhaps even lower rates, for an extended period of time in an effort to restore economic growth.

In the past 2 conference calls, investors seemed to be split evenly on the question of economic growth. Those who believe the economy is strengthening are expecting cyclical stocks, such as dividend paying energy stocks, to rebound. Investors who are worried that the economy is weakening, have parked a significant portion of their portfolios in money market accounts where they are getting close to zero interest rates.

Neither of these strategies has done well this year. The energy sector is the poorest performing sector in the S&P 500 losing almost 8% so far this year as the price of oil has fallen. Money market interest rates are currently about 0.10% a year. At that rate, a $1 million account would earn just $1,000 a year before taxes.

Click here to listen to this conference call and see the presentation. My next guest will be Bill Visconto who will explain how he hedges the systemic risk in a Marketocracy Master’s portfolio for institutional accounts. I’ve reserved 10 seats for Forbes readers. Click here to reserve a seat.

Ken: Eugene, lets start with you. What do you think?

Eugene: I believe that we are basically where they were at the end of 2008 when this recession began. The reason why the market has rebounded this far is the low interest rates. If the Federal Reserves moves rates up at all in this environment it would be catastrophic for our market. With unemployment at over 8% and real unemployment in the double digits there’s no way that our economy can sustain any rise in interest rates. The Fed recently decided to extend their zero interest rate policy for another 2 years. I think they understand that raising interest rates now would be extremely detrimental to future growth.

Ken: Is it fair to say you believe interest rates will stay low for a long time?

Eugene: That is a fair statement. I believe interest rates are going to stay at these low rates for the foreseeable future. The Federal Reserve has said it will be another 2 years at a minimum. They are going to be looking for sustained economic growth and a serious reduction in unemployment before they start raising interest rates.

Ken: You think interest rates will stay low or lower until the unemployment rate falls significantly?

Eugene: The main reason they haven’t already lowered interest rates is because they are almost out of bullets. If they lower rates and it doesn’t spur the economy, they will reveal to the world that they are out of bullets. They have extended their twist program to try to reduce long-term rates, but they haven’t done anything on the short term side.

Ken: So, people who are staying in cash and hoping to get a better return are probably not going to see any improvement for at least the next 2 years?

Eugene: Two, three, maybe even four years. It’s going to be a long time before money market accounts will be paying 5% again.

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